The equity market in the 1990s

The equity market in the 1990s was prominent in the public imagination owing to the famous “stock market scam” of 1992. This was a somewhat unfair characterisation, insofar as the malpractices on the GOI bond market were atleast as important as those on the stock market. However, this helped generate interest on the part of policy makers in new designs of the equity market.

In the 1990s, market structure changed substantially in India. The BSE replaced the NSE and government bond trading was introduced into the stock exchanges through a number of reforms. While foreign investment brought about a whole host of systemic challenges for India's financial markets, these were mostly overcome successfully by successive governments within the country.

In the 1990s, BSE was a dominant player in the Indian market. It is based on a unique feature of markets namely, trading of secondary securities. There were two other comparable exchanges, one private and one public. That is why we can observe a fascinating development where there emerged an intense rivalry between them.

The GOI bond market in the 1990s

In 1992, the GOI bond market did not use trading on an exchange. It featured bilateral negotiationbetween dealers. A major consequence of bilateral negotiation is that the market lacks price–timepriority. Further, the lack of anonymity implies that a variety of malpractices can flourish, suchas shading prices for favoured counterparties, forming and enforcing cartels, etc.